Ratio Analysis
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Accounting and Financial Management for Bankers — JAIIB.
One-liners from this chapter
Free sample — 8 of 66 rapid-fire Q&A cards.
What is ratio analysis in the context of financial management?
Ratio analysis is a quantitative technique used to evaluate a firm's financial performance by establishing mathematical relationships between two or more items from financial statements such as the balance sheet and profit and loss account.
What is the formula for calculating the Current Ratio?
Current Assets divided by Current Liabilities.
Which financial statements are primarily used for ratio analysis?
Ratio analysis primarily uses the Balance Sheet and the Profit and Loss (Income) Statement, and sometimes the Cash Flow Statement, to derive meaningful financial ratios.
Which ratio measures a company's ability to pay short-term obligations without selling inventory?
Quick Ratio or Acid-Test Ratio measures this ability.
What does the Current Ratio measure?
The Current Ratio measures a firm's short-term liquidity by comparing current assets to current liabilities; a ratio of 2:1 is traditionally considered ideal for most businesses.
What does a high Inventory Turnover Ratio indicate about a business?
Efficient inventory management and fast-moving stock.
How is the Quick Ratio (Acid-Test Ratio) calculated?
Quick Ratio = (Current Assets – Inventory – Prepaid Expenses) / Current Liabilities; it measures the ability to meet short-term obligations without relying on inventory liquidation.
How is the Debt Service Coverage Ratio (DSCR) calculated?
Net Operating Income divided by Total Debt Service obligations.
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